A period of relative placidity in global markets has come to a screeching halt amid President Donald Trump’s elevated, and surprising, truculence on China tariffs, prompting strategists at Goldman Sachs to increase in their forecast the chances for an escalation of international trade tensions.
Although the strategists believe there is still a good possibility for a resolution of Sino-American tariff tensions, the investment bank notes that the Trump announcement on Sunday “clearly reintroduces the risk of further tariff escalation, which seemed very unlikely over the last couple of months,” wrote Goldman analysts featuring Jan Hatzius, the bank’s chief economist.
In a pair of tweets over the weekend, Trump raised the threat of increasing tariffs to 25% from 10% on $200 billion in Chinese goods by Friday. “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he wrote.
The threats have reignited anxieties in the market that a tariff battle between the world’s two largest global powers, which had appeared to be near an agreement, could disrupt the global economy and deepen a slowdown being experienced in China.
Markets haven’t reacted well:
Early Monday, futures for the Dow Jones Industrial Average futures
were down 480 points, or 1.8%, S&P 500 futures
fell 47 points, or 1.6%, to 2,902, while Nasdaq-100 futures
slumped 153 points, or 2%, to 7,711.
The steep decline comes after the Nasdaq Composite Index
advanced 127.22 points, or 1.6%, on Friday to 8,164, with the technology-heavy index carving out an all-time high. The S&P 500 index
climbed 1% to 2,945.64 on Friday, leaving it not far from its own record, while the Dow
rose 197.16 points, or 0.8%, to 26,504.95.
U.S.-China trade negotiations were set to resume this week, with Vice Premier Liu He expected to arrive in Washington on Wednesday, along with a sizable Chinese delegation. However, per Goldman, that is in question:
The most important near-term indicator to watch will be whether the large delegation of Chinese officials comes to Washington on May 8, as scheduled. If they do, this would indicate that they believe a deal is still reasonably likely. In this case, the tariff rate would rise only if the two sides are unable to come to an agreement by Thursday, before the increase takes effect on Friday. Alternatively, if the upcoming visit is canceled, an agreement in the coming week would then seem very unlikely. In such a scenario an increase in the tariff rate to 25% would become the base case.
In Asia markets tumbled as well, with the Shanghai Composite
closing down 5.5%, while the Hong Kong Hang Seng Index
lost nearly 3%.
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